Coronavirus, oversupply and growing expectations of a drop in economic activity have caused a 60% drop in oil prices
Shell announces first dividend cut in 80 years
- Dividend cut comes after profits dropped dramatically in the first quarter of the year due to the slump in the oil price
- Quarterly payment is cut by 66% to $0.16 as earnings fall from $5.3bn to $2.9bn
- Move follows Group’s decision to suspend buyback scheme and significantly reduce capital spending
- Recommendation: We maintain our ‘Buy’ recommendation for investors as we believe the current level of the shares represents good value for the longer term
Royal Dutch Shell announced the first cut in its dividends for 80 years today after its profits dropped dramatically in the first quarter of the year due to the slump in the oil price. The company cut its quarterly payment by 66% to just 16 US cents after its earnings fell from $5.3bn to $2.9bn. Although highly unusual, the cut was not entirely unexpected given that the oil price plummeted 60% in the first quarter as the market responded to the coronavirus outbreak, the large oversupply caused by the Russia-Saudi dispute, and growing expectations of a sharp drop in future economic activity. The move follows the company’s decision to suspend its share buyback scheme and significantly reduce capital spending, with the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand given as the main reasons.
The market naturally responded negatively to the move with the shares falling back 7% in early trading, despite a 6% rise in the oil price today. Investors are probably focusing on the fact that the company stated that it expects the factors behind its decision to last beyond this year, and so many fear that dividends are likely to be at current levels for some time. We maintain our Buy recommendation for investors as we believe the current level of the shares represents good value for the longer term.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.